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Emulex Corp. Removes Its President in Management Shake-Up : Move Aimed at Reviving Lackluster Performance

January 19, 1988|DAVID OLMOS | Times Staff Writer

Emulex Corp. has removed its president, Stephen W. Frankel, as part of a reorganization aimed at reviving the company's lackluster financial performance.

The management shake-up was announced Monday by Chairman and Chief Executive Officer Fred B. Cox, who will assume the additional title of president.

In a brief written statement Monday, Emulex made no mention of Frankel, the company's president for the past three years, or his future role at the Costa Mesa-based computer products firm.

Frankel, contacted by telephone at his home, declined to comment on the management change or his status with the company.

Years of Declining Profits

Emulex spokesman Mack McLaughlin said Frankel is still an employee of the company but declined to provide additional details.

The management changes come after three years of flat sales and declining profits at Emulex, a leading supplier of add-on products for Digital Equipment computers.

Cox said the actions were part of an effort "to streamline the company's management structure while increasing its focus on its traditional product families and distribution channels."

As part of the reorganization, Emulex has consolidated its three product groups--data storage, data communications, and semiconductor and circuit boards--into one organization to be headed by Jay O'Donald, a vice president who joined the firm in 1980.

In other management changes, Earnest Hiltbruner has been named to oversee the firm's manufacturing operations in Costa Mesa and Puerto Rico. Hiltbruner has been general manager of the firm's Costa Mesa plant. John Lawson has been named to oversee product quality control operations.

Emulex's board of directors approved the reorganization at a meeting Friday.

Change Follows Inside Rumors

The reorganization follows rumors last week within the company and the financial community about possible management changes at Emulex.

Malcolm Green, Emulex's former chief financial officer and a major stockholder who maintains close ties to the company, said Monday that Emulex vice presidents William Mathrani, Bill Osgood and Ashok Dhawan were affected by the changes. The three formerly were in charge of operations that have now come under the supervision of either O'Donald or Hiltbruner.

Emulex spokesman McLaughlin said Mathrani, Osgood and Dhawan remain on the company's payroll, but he would not say what their current responsibilities are.

"We don't have any comments on what they're doing or what their titles are," McLaughlin said.

Mathrani, Osgood and Dhawan could not be reached for comment Friday.

Emulex, founded in 1979, is a major supplier of storage products and other peripherals for Digital Equipment computers. About 60% of its products are sold to the Digital Equipment market. However, while Digital Equipment's business has boomed during the past year, Emulex's performance has not kept pace.

Feeling Effects of Downturn

The company also produces communications equipment for IBM personal computers and compatible machines and peripheral controller products.

Frankel, a former senior executive at Micom Systems in Chatsworth, joined the Costa Mesa company as president in December 1984. Like other computer companies, Emulex was beginning to feel the effects of a major industry downturn. Although Emulex's revenues were rising in late 1984, its earnings had begun to decline for the first time.

At the time of Frankel's appointment, Cox was quoted as saying he hired Frankel because the company "wasn't performing as well as it should under me . . . plus we felt we needed some younger blood for the future."

But Frankel had been unable to turn around Emulex's performance. For the past three years, sales growth has stalled, and earnings have continued to fall.

Emulex's net income fell 53% to $3.48 million in the fiscal year ended last June. Sales were down slightly to $103.8 million.

Analysts said Frankel's plan to broaden the company's product line, particularly into the data communications market, has been slow to bear fruit. The company has spent heavily in the past three years to develop new products but has been hurt by its inability to bring new products to market on schedule.

Laid Off Most of the Workers

In late 1986, Frankel ruffled the feathers of some Emulex shareholders and management, when he abruptly closed the firm's money-losing Persyst unit, a maker of products for IBM personal computers, and laid off most of the workers.

"I felt he threw away some good assets," said Green.

Another problem Emulex has faced is an ongoing patent infringement litigation with Digital Equipment.

Recently, the company has come under pressure from Wall Street and its stockholders to improve its financial performance. Much of the criticism has been directed at Frankel.

Last fall, for example, Green and William Roberts, an Emulex co-founder and former chairman, were highly critical of Frankel in an article published in an industry trade journal.

Green said Friday that he supports Cox's decision to replace Frankel. "The record does not support Mr. Frankel's presidency," he said. "Three years of flat sales and decreased earnings is not the kind of record that keeps you in the job."

Revenues Grew 15%

Ironically, Emulex recently has shown signs of shaking its three-year slump.

Emulex's revenues grew 15%, to $28.7 million, for its first quarter ended last September compared to year-ago results. Net income was $1.6 million, up slightly from $1.5 million a year earlier.

"We're optimistic about business," said Emulex's McLaughlin. "Our trend seems to be up. It could be a very good year."

One industry analyst expressed surprised at Frankel's departure.

"He (Frankel) knows technology and the direction of the industry," said Ronald E. Elijah, an analyst with Robertson, Colman & Stephens, a San Francisco investment firm. "I think he's a good manager. There are some things going right inside the company."

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